5 Hurdles to Scaling a Start-Up

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Growing a small business into a big one can be pretty tricky. In the beginning stages of building a start-up, often there are two paths. One path is to come up with a concept, raise funding for it, put your shingle out for business and then hire people. The other path is to grow organically, one employee at a time, and build the company incrementally hiring people to fit the business need and only as the enterprise grows.

I recently had the pleasure of talking with Dan Pine, Head of the portfolio management team at Forum Securities Ltd., an entrepreneurial real estate investment firm. Our conversation began on the topic of writing, metrics and analyzing companies. It evolved into one revolving around the challenges of growing a company. We talked about the second scenario, trying to grow a start-up organically. Here are his insights, which I have reassembled into 5 hurdles to scaling a start-up:

1. Scaling a person’s skill set

Every start-up begins with a vision and a founder, someone who saw the need to try a new way of doing things. It’s the vision that drives and motivates the founder, and that person probably has a unique skill set which encompasses many aspects of the growing business. A founder brings key client relationships to the business, supporters who help to get the company off the ground and provide a steady source of revenue. But if the personality or skill set of the founder is impossible to replicate, the business may not grow very much or flounder altogether. Scaling a person’s unique abilities or relationships can be an insurmountable hurdle.

The answer lies in letting the founder do what he or she does best, and remove some of his/her other responsibilities. Scale the business, not the individual, by moving some of the less important duties to others in the organization, and grow those parts of the business with different members of the team.

2. Maintaining a strong corporate culture

Start-ups invariably try to keep overheads low. Sometimes you will see a small, core management team and then a trusted team of freelancers that work at arm’s length for larger projects. Often, there is no office, so it can be a challenge to develop a corporate culture or affinity amongst colleagues. They simply don’t see each other enough.

The answer is to establish set meeting dates and times, either weekly or perhaps twice each week. Everyone physically gets together to discuss current projects and the business itself. The meeting can be over lunch or coffee, but everyone has to come. The team will get to know each other and bond. They will work towards the same goals, and the corporate culture will take foot.

3. Leveraging client relationships

The traditional equity structure of a partnership is one way to grow a business. Partners that join a firm bring clients, invest in the equity of the business and adhere to a rigorous work ethic and long hours. A typical dilemma has always been trying to leverage client relationships which are so deeply tied to one of the partners. In a sense, it is a similar problem to scaling a person as opposed to a business.

The answer is to keep the partner who has the client relationship as the main contact, or the face of the firm to the client. At the same time, that partner can make introductions and promote working relationships amongst different areas and individuals in the firm. The key is to try and leverage the relationship, but not compromise it. As younger managers in both the start-up and client emerge, the relationship and points of contact between the organizations will broaden too.

4. Acquiring funding without giving away control

Back to the two paths, and in particular the first one: come up with a concept, raise funding for it, put your shingle out for business and then hire people. With this route, it is possible to build the business faster and scale with immediacy, because funding allows you to bring on managers, hire a core group of employees, perhaps employ a sales team and pay for lead generation software. But, the price may be that in taking on a financial partner(s), you end up losing your controlling interest as well as the ability to build the company the way you envision it.

The answer is the second path, organic growth, if you genuinely want to build a company which is yours. It takes time for visions to unfold, and often the business will evolve quite differently than planned. While it may make strategic sense to motivate partners with equity, it is an entirely different matter to give away control of the business. Use ownership stakes to incentivize and align management, but maintain financial control so that in the end, you will have majority ownership of the company you worked so hard to build.

5. Finding talented people to join you

Start-ups demand long hours. Often, the founders wear multiple hats and must do any and everything that needs to be done. As the client base grows, the role of jack of all trades and master of none no longer works. The business simply will not grow unless you find talented people to take on some of the tasks in a more structured way. Another problem is that the clients that you began the business with can often get overlooked as the organization tests its limited resources.

The answer is to always be on the lookout for talented, like-minded people who offer skill sets that you need. Build your business by hiring or partnering with them and start to evolve the organizational structure of the company. It’s not easy to pass responsibilities to others, but the start-up will not grow unless you learn to do so.

If your start-up is beginning to take off, confront the hurdles that go along with scaling it. It’s good for your clients and it’s good for the business. Plus, your company will end up with the bench strength to confront the many challenges ahead.